Why Do I Write So Much About Short-Selling?

I'm asked that question from time to time. The reason is that I know of no area in finance where there is more wackiness and more inane disregard of the public interest.

Take this this New York Times story today. Seems a company has decided to pay a special dividend -- but only to shareholders whose shares are held in their own name. That will simultaneously cause trouble and expense for the many shareholders whose shares are held in "street name" -- and, simultaneously, squeeze short-sellers. Shorts must borrow shares in order to sell them, and they can only borrow shares held in "street name."

In short -- a nice way to punish people betting aginst your shares. The Times explains that "The warrant, as explained in the Pegasus news release, appeared to suggest that brokers — who can lend out stock they hold in certain client accounts — might have to recall the shares so that investors could prove they were the owners. Such action would require those who sell short to give the stock back to the brokers, pushing the price up and creating a short squeeze."

My question is this: What is Chris Cox's SEC doing while all this is going on? Oh, the Times reports the SEC is "examining the issue." How nice.



© 2006 Gary Weiss. All rights reserved.

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